How mortgage points work
A discount point is an upfront fee equal to 1% of the loan, paid to lower the interest rate. Each point often lowers the rate by about 0.25%, though this varies by lender.
The formula
Break-even months = cost of points ÷ monthly savings
Worked example
On a $320,000 loan, one point costs $3,200. If it lowers the rate from 6.5% to 6.25%, the payment drops from $2,022.62 to $1,970.30, saving about $52 a month. Break-even is about 61 months.
How to use this calculator
Enter the loan amount, interest rate and loan term, then the points bought and the rate cut per point. The mortgage points calculator shows what the points cost, the new rate, how much they lower your monthly payment and how many months it takes for the savings to repay the cost. Use the rates from your own loan offers, because the rate cut per point differs between lenders.
What the result means
Break-even is the month when your total savings equal what you paid for the points. Before that month you are behind. After it, every payment puts you ahead. Compare the break-even with how long you expect to keep the loan. If you sell or refinance first, you do not recover the cost.
More examples
This table extends the example to two points on the same $320,000, 30-year loan, assuming each point lowers the rate by 0.25%.
| Points | Cost | Rate | Monthly payment | Monthly savings | Break-even |
|---|---|---|---|---|---|
| 0 | $0 | 6.5% | $2,022.62 | None | None |
| 1 | $3,200 | 6.25% | $1,970.30 | $52.32 | About 61 months |
| 2 | $6,400 | 6.0% | $1,918.56 | $104.06 | About 62 months |
How long you keep the loan decides the payoff. After seven years, one point has saved $4,395 in payments, which is $1,195 more than it cost. Two points are ahead by $2,341. Over the full 30 years, one point comes out $15,636 ahead and two points $31,060 ahead. If you sell after three years, one point has returned only $1,884 of its $3,200 cost.
What changes the result
- Rate cut per point. A bigger cut for the same price shortens the break-even. A smaller cut lengthens it.
- Loan amount. The cost and the savings both scale with the loan, so the break-even in months stays about the same.
- Time in the loan. This is the deciding input. Points pay only if you stay past break-even.
- Loan term. Savings are counted over fewer payments on a shorter loan.
Common mistakes
- Assuming every lender gives 0.25% per point. Check the rate on each written offer.
- Counting the break-even from the full 30 years when you expect to move or refinance sooner.
- Mixing up discount points and origination points. Only discount points lower the rate.
- Spending cash on points that you need for the down payment or reserves.
- Comparing offers by rate alone. A lower rate with points can cost more than a higher rate without them.
Related calculators
See the full payment at each rate in the mortgage calculator. Points are paid at closing, so add them to your total in the closing cost calculator. If you are weighing points on a new loan to replace an old one, use the refinance calculator.
Frequently asked questions
Are points worth it?
Only if you keep the loan past the break-even point.
Are discount points the same as origination points?
No. Origination points are a lender fee and do not lower the rate.
Are points tax deductible?
They can be. Ask a tax professional.
How much does one point cost?
1% of the loan amount. That is $3,200 on a $320,000 loan and $2,000 on a $200,000 loan.
What happens if I refinance before the break-even?
You lose the part of the cost you have not yet earned back. In the example, refinancing after three years leaves $1,316 of the $3,200 unrecovered.
Is it better to buy points or make a bigger down payment?
It depends on your loan. Points lower the rate. A bigger down payment lowers the loan amount and stays with you as equity. Run both options and compare the payment and the break-even.
Does the break-even include interest I could have earned on the cash?
No. The formula on this page divides the cost by the monthly savings. It is an estimate and does not count what the money could have earned elsewhere.